Exercise 7-1B: Analysis of Financial Statement Effects of Accounting for Uncollectible Accounts Under the Allowance Method

Accounting for Receivables

Exercise 7-1B: Analysis of Financial Statement Effects of Accounting for Uncollectible Accounts Under the Allowance Method

Hardin Services Co. experienced the following events in Year 1:

1. Provided services on account.
2. Collected cash for accounts receivable.
3. Attempted to collect an account, and when unsuccessful, wrote off the amount to uncollectible accounts expense.

Required:

• Show the effect of each event on the elements of the financial statements using a horizontal statements model.
• Use + for increase, − for decrease, and NA for not affected.
• In the Cash Flow column, indicate whether the item is an Operating Activity (OA), Investing Activity (IA), or Financing Activity (FA).

Exercise 7-2B: Accounting for Bad Debts - Allowance Method

Sandy’s Accounting Service began operation on January 1, Year 1. The company experienced the following events during its first year of operations:

Events Affecting Year 1:

1. Provided $96,000 of accounting services on account.
2. Collected $80,000 cash from accounts receivable.
3. Paid salaries of $32,000 for the year.
4. Adjusted the accounts to reflect management’s expectation that uncollectible accounts expense would be $1,600.

Required:

• a. Prepare general journal entries for Events 1 through 4.
• b. Post the general journal entries to T-accounts.
• c. Prepare an income statement, balance sheet, and statement of cash flows for Year 1.

Exercise 7-3B: Analyzing Account Balances for a Company Using the Allowance Method of Accounting for Uncollectible Accounts

The following account balances are from the records of Stone Company:

During the accounting period, Stone Company recorded $21,000 of service revenue on account and wrote off a $180 account receivable.

Required:

• a. Determine the amount of cash collected from receivables.
• b. Determine the amount of uncollectible accounts expense recognized during the period.

Exercise 7-4B: Effect of Recognizing Uncollectible Accounts Expense on Financial Statements - Percent of Revenue Allowance Method

Reliable Auto Service was started on January 1, Year 1. The company experienced the following events during its first two years of operation:

Events Affecting Year 1:

1. Provided $45,000 of repair services on account.
2. Collected $32,000 cash from accounts receivable.
3. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1% of the service revenue on account.

Events Affecting Year 2:

1. Wrote off a $320 account receivable that was determined to be uncollectible.
2. Provided $65,000 of repair services on account.
3. Collected $66,000 cash from accounts receivable.
4. Adjusted the accounting records to reflect the estimate that uncollectible accounts expense would be 1% of the service revenue on account.

Required:

• a. Record the events for Year 1 in general journal form and post them to T-accounts.

• b. Determine the following amounts for Year 1:

  1. Net income for Year 1
  2. Net cash flow from operating activities for Year 1
  3. Balance of accounts receivable at the end of Year 1
  4. Net realizable value of accounts receivable at the end of Year 1

• c. Repeat Requirements a and b for the Year 2 accounting period.